Court of appeal rules that financial ombudsman service awards are binding on consumers
The Court of Appeal’s landmark ruling in Clark v In Focus Asset Management & Tax Solutions  EWCA Civ 118, was issued on Friday 14 February and has been welcomed by the financial services market and professional indemnity insurers. Delivering the unanimous judgment of the Court, Arden LJ confirmed that when a consumer accepts a final decision and financial award from the Financial Ombudsman Service they cannot then sue the business for the balance of any remaining losses.
The case arose when Barry and Julie Clark received advice on the investment of the proceeds of the sale of their house. They complained to the FOS in 2008 that the advice was unsuitable and caused them losses of £500,000. Their complaint was upheld by an ombudsman and Mr & Mrs Clark accepted £100,000 redress which was the maximum award available from the FOS at the time (subsequently increased to £150,000 for complaints since January 2012). Mr & Mrs Clark then issued proceedings to recover their remaining losses.
The doctrine of merger states that a claimant cannot receive more than one judgment in a court or tribunal for the same cause of action or on the same matter. On that basis, the County Court struck out Mr & Mrs Clark’s case. The High Court upheld the Clarks’ appeal and found that the doctrine of merger does not apply to the FOS. Cranston J stated that the FOS is not a judicial service; it is a service which decides complaints that are not specific enough to found causes of action.
Those in financial services were concerned about the far reaching implications of Mr & Mrs Clark’s success in the High Court, which many believed would give consumers two bites at the cherry. Most heavily affected would be those providing investment and pensions advice from which the greatest losses may arise. Casting the FOS as a pit stop on the route to litigation could have allowed consumers to obtain an award of £150,000 to fund litigation. In addition, given that the FOS can recommend but not compel payment of compensation above its £150,000 limit, claimants could have adduced the findings of the Ombudsman in support of their action. In short, there would have been nothing stopping a consumer “having a go” at complaining to the FOS for an initial view on the merits of their case before initiating proceedings. After all, the FOS is free to the consumer, as it is the business which must pay the case fee. Some queried the Ombudsman’s capacity to deal with the anticipated increase in complaints that this would create.
The Court of Appeal has now provided welcome clarity. Once a consumer has accepted an award from the FOS the matter ends there. There is no scope for the consumer to accept the award and reserve his right to litigate. A claim for additional compensation cannot be made if the substance of the FOS complaint was the same as the cause of action before the Court. The Court of Appeal did not wholly rule out the possibility of recourse to the courts if the facts relied upon at the FOS were different and, consequently, there is a separate cause of action. The Court stated that the burden will be on a business to prove that the causes of actions are the same with reference to the documentation before the FOS. It is, therefore, advisable for businesses to be detailed and specific about the complaint which they are considering in their final decision letters.
The Ombudsman’s role has been reiterated; it is an alternative to litigation and not a stepping stone. It is intended to provide finality and certainty to both businesses and to consumers. Arden LJ was emphatic that the statutory purpose for establishing the FOS was to protect consumers but this did not mean that complainants to the FOS should be in a better position than litigants. Those with complaints have a choice to make, they can take advantage of the free and simpler route of complaining to the FOS, knowing that their redress will be capped, or for higher value and likely more complex matters they can take the litigation route. This choice remains open to them right up until the award is accepted. If, upon receipt of a positive decision from the Ombudsman, the consumer wishes to recover compensation exceeding £150,000 then they must decline the award and commence proceedings. Consumers must bear in mind that there is no guarantee that a civil court applying a different test to the FOS will reach the same conclusion.